Does Johnson Controls-Tyco Combo Make Sense? Analysts React

Johnson Controls Inc JCI and Tyco International plc (Ireland) Ordinary Shares TYC recently agreed to merge in a $14 billion dollar deal with Johnson Controls owning 56 percent of the new company.

The deal is expected to provide significant tax benefits to shareholders and is being called another “corporate inversion.” Following the announcement, analysts from Robert Baird, Bernstein and UBS gave their opinion of the deal.

Robert Baird: Outperform Rating, PT Of $51

David Leiker and Adam Schmitz, analysts at Robert Baird, wrote, “Cost/tax synergies from the merger drive another $5 upside (to stock price) [...] Our recommendation of Johnson Controls is supported by mid-teens EPS growth on organic margin drivers.”

Going forward, analysts are questioning the overlap of Tyco’s commercial focused business and Johnson Controls’ industrial focused businesses with regard to potential revenue and cost synergies. Baird notes that Johnson has had a good track record of integrating past acquisitions, which could materialize in this situation as well.

Bernstein: Outperform Rating, PT Of $41

Steven Winoker, an analyst at Bernstein, wrote, “We like the business combination, starting synergies and upside. We do not like the ‘price paid’ to Tyco shareholders [...] In the near term, we see deal mechanics occupying much of the air-time and over time, the business logic and upside crystallizing.”

UBS: Neutral Rating, Raised PT To $34

Shannon O’Callaghan, an analyst at UBS, wrote, “The deal seems to achieve JCI’s goal of becoming a multi-industry company and Tyco’s expanded market ambitions beyond fire and security [...] The cost synergies appear achievable as the extensive branch networks of both companies suggest the ability to consolidate and optimize branches, vehicle fleets, and back office.”

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